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ANZ Group boss Mike Smith sees Chinese stimulus next year as new leaders look to 'rev up' economy

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By Gareth Vaughan

After China's new leaders assume power next March they're likely to move to stimulate the economy which will be "extremely good" for New Zealand and Australia, says ANZ Group CEO Mike Smith.

Speaking to interest.co.nz in a Double Shot interview Smith said he was comfortable with developments in China even though its economy had been slowing. Smith, a former HSBC executive who took the reins at ANZ in October 2007, has pursued a "super regional" strategy built around Asian expansion.

ANZ has grown in Asia including through buying the Asian retail, wealth and commercial operations of the Royal Bank of Scotland in a A$685 million deal, and investing about A$695 million in its locally incorporated Chinese subsidiary.  ANZ has also sought to grow earnings in Asia by capturing banking business associated with trade and investment flows and by cross selling fee-based services to institutional banking clients.

In ANZ's recently released annual results its Asia, Pacific, Europe and America division contributed 21% of group revenue with "greater China" now ANZ's third largest market in terms of earnings.

Smith noted that a lot had been made in recent months of Chinese economic growth slowing to 7% or 8%.

"But if you look at the size of the economy, it has to slow. It can't keep going at 10% to 12%. I mean even 7% is like adding four New Zealand economies every year on top of what they've already got, which is huge."

He said the issue in China has been the leadership change and the transition, which will see Xi Jinping take over as president from Hu Jintao in March. Smith said this had thrown up no major surprises with what was quite a conservative team named.

"I believe that means you'll see continued reform, deregulation and basically things will move as before. Nothing will happen now until March, until they actually get their knees under the desk. And after that I think we'll probably see a little bit of stimulus," Smith said.

"I think they'll want to come in and rev it up a little bit. And I think that's going to be extremely good for New Zealand and Australia."

China's urbanisation and industrialisation push was continuing with urbanisation of its population having just reached 50%.

"They want to get it to about 80%. That's going to take another 10 years or so, so that demand (for New Zealand and Australian products) is going to continue."

Elsewhere in the world Smith said he believed the United States economy was probably in better shape now than it had been for some time with the Federal Reserve's quantitative easing, or money printing, taking effect, the housing market having bottomed out, and shale gas set to be a "game changer" providing cheap energy for US industry. As for the fiscal cliff, Smith said he expected the squabbling Democrat and Republican politicians to take it to "the final hour" but ultimately a deal would get done.

Europe, however, was another story with the Euro-zone sovereign debt crisis continuing. Smith suggested the only thing that was going to get Europe out of its problem was economic growth and there was a long way to go. European leaders were playing for time.

"It's a bit like putting a band aid over a bullet wound," Smith said. "it looks better but you're not sure what's going on inside. Is it healing or is it getting septic? I think there's a long way to go in Europe."

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